GST treatment of financial planning fees

- EXPOSURE DRAFT FOR COMMENT AND DISCUSSION ONLY -

This statement sets out the Commissioner’s view on the GST treatment of services provided in relation to financial planning fees charged by financial advisers to plan, implement, and monitor an investment portfolio for their investor clients. This interpretation statement replaces Public Ruling BR Pub 95/11 that appeared in Tax Information Bulletin Vol 7, No 7 (January 1996). The Public Ruling ceased to apply from 31 March 1999.

All legislative references are to the Goods and Services Tax Act 1985 unless otherwise stated.

This statement considers the GST treatment under sections 3 and 14, of a range of services provided by financial advisers for financial planning fees charged to investors. In this regard, the actual nature of the services provided is important and will determine the liability to GST of the financial planning fees paid for those services.

Activities that involve the provision of advice are generally excluded from the meaning of "financial services".

An investor who seeks advice from a financial adviser will be charged for the services provided. Whether these fees are exempt supplies or subject to GST will depend on the nature of the services provided.

When an initial financial plan has been devised, agreed to by the investor and implemented by the adviser, that is not necessarily the end of the matter. Usually systems are in place that require the adviser’s continued involvement. Most financial advisers offer a continuing monitoring service that is generally part of an overall advisory package. The investments are often (but not always) placed in the care of a custodian (presumably for security reasons) and the income derived from the investments passes to the adviser or custodian where it is placed in a trust account before being able to be drawn upon by the investor. The maintenance of these trust accounts by the adviser usually incurs costs that are charged to the investor. As part of the service, the adviser may monitor the portfolio to ensure that the aims of the investor are continually met. For this service the investor will often pay further fees. From time to time as part of this monitoring service the adviser can recommend changes to the investment mix. If the investor accepts these recommendations to change investments, further fees are incurred which may include switching fees.

It is the Commissioner’s view that public ruling BR Pub 95/11 has been useful in respect of the GST treatment of the financial planning fees. However, despite the issue of the ruling there has been occasional uncertainty on how the ruling should be applied. Although some of these were discussed within the commentary definitions of the three categories identified, participants in the financial planning industry may have had difficulty in applying the ruling. It seemed logical to extend and further define the present three categories to make it easier for advisers and others in the financial planning industry to decide whether or not the planning fees were subject to GST. Similar issues arose and the same approach was taken in relation to the previous income tax public rulings (Public Rulings BR Pub 95/10 and 10A) that dealt with the income tax deductibility of financial planning fees charged to investors.

Financial advisers charge for a number of services provided to their clients, sometimes using different names for these component services. The GST tax treatment of the fees depends not on the name given to the service, but on the nature of the service. To determine the correct tax treatment of a service, it is important to identify the exact service a financial adviser provides.

The adoption of the expanded categorisation of fees in this statement is intended to make it easier for financial advisers and others to determine how fees charged and the services provided will be treated for GST purposes. The categories correspond to the process usually followed when an investor seeks the assistance of a financial adviser.

The fees charged by financial advisers vary from one adviser to another, but generally they can be separated into a number of categories. Financial planners give the fees charged various names, but the crucial point that determines the GST treatment is for what service(s) the fee is actually paid. The nature of the service provided will determine whether the fees paid are for a supply of a "financial service" and thus an exempt supply, or otherwise qualify as a supply of services exempt from GST.

The fees can be summarised as:

If financial planners charge a global fee (that will include fees for more than one of the above categories), it will be necessary for the fees to be apportioned between the categories, based on the actual work done, to ensure the fees are correctly treated for GST purposes.

A similar apportionment exercise needs to be undertaken in the case of "performance fees", where In some situations an investor may have the option of being able to elect to pay a performance fee for those services instead of fees for some or all of the categories noted aboveof the type usually charged for the services. Performance fees are a form of global fee paid to advisers, based on how well the portfolio of investments selected by the adviser and agreed to by the investor is performing against some pre-determined measure.

The calculation of the seven categories of fees noted above might be based on a standard fee structure, hours of work put in by the adviser, the amount of the investments made by the investor, or a combination of those. Performance fees on the other hand, are calculated under some pre-determined formula based on how well the investor’s portfolio, as recommended by the adviser, performs over a period of time. These fees could include a standard amount, plus a percentage based on the extent to which the level of growth or return from the portfolio exceeds previously agreed targets, or the fee could be based solely on a percentage of the returns/agreed targets.

Irrespective of the name given to the fee, or the basis of calculation, the GST treatment of the fees will be determined having regard to the services performed in establishing, administering, and altering the investor’s portfolio, based on the seven categories of services mentioned above. It may be that in certain cases the performance fee is paid in respect of all seven categories of services, while in other instances the fee may be only for services coming within some of the categories, e.g. the administration and monitoring fee categories. In view of this, in determining the GST treatment it is not the description (label) the adviser attaches to the fee charged that is relevant, rather it is what service(s) the fee is actually paid for. Performance fees are in reality no different to any other global or multi-service fee charged by an adviser. How the amount is apportioned among the categories of services is a question of fact to be determined in the circumstances of the particular case.

Subsection (a) of section 14 is relevant for the purposes of this statement and states:

The parts of the section 3 definition of "financial services" that are relevant for the purposes of this statement are as follows:

In order to determine whether particular services supplied are exempt, it is necessary that the supplies fall into the criteria stipulated in section 14. Section 14(a) requires that there must be either a supply of a financial service or the supply of a good or a service that is "reasonably incidental and necessary" to the supply of a financial service provided by the same supplier.

The parts of section 3(1) under consideration raise two further interpretative matters: the meanings to be ascribed to the words "arranging" and "advising" as used in paragraph (l). A number of the supplies of services under consideration involve financial advisers providing various levels of advice or arranging for another organisation to implement an investor’s financial plan (place investments, etc.) and/or to collect income from the investments and arrange payment or crediting to the investor. A preliminary issue is the position under section 3(1)(l) of persons or organisations who may act as intermediaries between the investor and the person actually undertaking the activities specified in paragraphs (a), (c), (d) or (ka) of section 3(1).

The agreeing to do or arranging any of the activities listed in section 3(1) in terms of paragraph (l), encompasses the activities of brokers or intermediaries who arrange for the provision of financial services, such as mortgage, superannuation and life insurance brokers. This finding was concluded in Product Ruling BR Prd 96/30 issued by Inland Revenue in respect of section 3(1)(l) (Tax Information Bulletin Vol 8, No 8, November 1996).

The adviser often does not actually undertake any of the activities in section 3(1)(a) to (ka), but is authorised to arrange the activities to be undertaken for and on behalf of another (the investor). In this situation the adviser is acting as an intermediary. In other words, the financial adviser does not implement the plan on his/her own behalf but on behalf of his/her clients. This factor does not take the intermediary’s actions outside the ambit of section 3(1)(l).

Similarly, where a custodian is involved, it is the custodian who usually implements the financial plan on instruction from the financial adviser. Even though there is another intermediary besides the financial adviser, the fees incurred from the service provided by the custodian are still within the ambit of section 3(1)(l).

The term "arranging" is not defined in the Act. While the courts have not specifically discussed the term, Davison CJ in Databank Systems Limited v CIR (1987) 9 NZTC 6,213 (HC) did indicate that an appropriate meaning would be "cause to occur". This suggests that there is also an element of certainty that the service will be provided to the client. Equally, Lord Templeman in CIR v Databank Systems Limited (1990) 12 NZTC 7,227 (PC) indicated that the exemption did not extend to services which merely resulted in the supply of financial services. These two statements indicate the need for a close connection between the service undertaken and the financial service supplied to the recipient in order for that service to be the arranging of the financial service.

Databank (PC) also illustrates the principle that it is the service being supplied by the supplier to the recipient that is paramount and not the overall nature of the activity comprising those services. Both the Databank (PC) and Turakina Maori Girls College Board of Trustees v CIR (CA) (1993) 15 NZTC 1,032 decisions demonstrate the importance of dissecting the transaction involved to determine precisely what service is being provided in order to establish whether a financial service is being provided.

"Arranging" can be given a wide or a narrow interpretation. A wide interpretation would include every step that results in the financial service being provided to the client, independently of whether a service is actually provided or of any intention of a service being provided. This would include promotions and marketing which do not necessarily lead to any service being provided or research into any areas where investment may be expanded to in the future. Lord Templeman rejected this wide interpretation in the Databank (PC) decision.

By comparison, the narrow meaning requires a nexus or a close linkage to the provision of the actual financial service to the client. These activities would include brokerage services or filling out forms for a client. The activities are for a specific purpose, and it is highly probable that the supply of a financial service will occur following those activities. For example, the general monitoring of the debt securities market would not be arranging the issue of a debt security, despite the monitoring being required for the making of a prudent investment.

While the New Zealand courts have not directly considered what constitutes arranging in terms of section 3(1)(l), they have provided some determinative guidelines in establishing the application of arranging. That is, "arranging" is to be interpreted in a narrow sense, and that when considering what is inclusive of arranging, it is important to dissect the transaction involved to precisely determine what service is being provided, and not be swayed by the overall nature of the activity that the recipient or supplier is involved with. This is in order to establish whether it is a financial service that is being provided (Databank (PC), Turakina Maori Girls College and Case Q10 (1993) 15 NZTC 5,061).

Putting this into the context of section 3(1)(l), "arranging" must have a direct connection to the specific supply of that financial service. It is not enough that the arranging may have caused the supply of that financial service, what is necessary is that the activity of arranging intentionally causes the provision of a financial service as defined in section 3(1)(a) to (ka). This interpretation is consistent with how the courts in the United Kingdom have defined the term "making of arrangements" (Hargreaves Landsdown Asset Management v C & E Commrs [1995] BVC 896, Dogbreeders Associates v C of CE (1989) VATTR 317 and Donald Ford v The Commissioners (1987) VATTR 130) and how Revenue Canada has defined the term "arranging" in its policy statement (Ruling No. 11783-2).

Section 3(1)(l) expressly excludes the activity of "advising thereon" from the concept of arranging a financial service, and therefore the "financial services" definition. If a service is advisory, then it is not an exempt supply under section 14(a).

The courts in New Zealand (and overseas) have not considered the words "advising thereon". However, the word "advising" has been considered. In JR Moodie Co Ltd v Minister of National Revenue [1950] 2 DLR 145 Rand J (at p.148) stated:

The word "advice" in ordinary parlance means primarily the expression of counsel or opinion, favourable or unfavourable, as to action, but it may chiefly in commercial usage signify information or intelligence.

The Concise Oxford Dictionary suggests two types of advising (being consistent with the Moodie decision). Advising that involves a degree of counsel or recommendation, and advising that merely involves notification; the dissemination of information.

In one sense, the exclusion for "advising thereon" from the paragraph (l) activity of "agreeing to do, or arranging" other financial services activities, could be said not to apply to the mere provision of information to a client in order for that client to decide where the funds should be invested.

However, it is possible to argue that the reference to "advising thereon" is in fact capable of wider meaning and also excludes (from financial services) the provision of information.

To assist in settling this point it is necessary to consider the meaning of the word "thereon". Comparing the meaning of "thereon" with the word "thereof" may also assist in determining the meaning to be applied to the phrase "advising thereon".

The Concise Oxford Dictionary (8^th Edit.), for example, includes the following definitions:

In the context in which the phrase "advising thereon" is used in section 3(1)(l), it is considered that it bears the more limited of the two possible meanings. That is, the exclusion for "advising thereon" requires more than mere notification of or the dissemination of information regarding the activities in section 3(1)(a) to (k). Rather it excludes activities involving a degree of interpretation of information, counsel or opinion relating to those activities.

However, in the case of the information and reporting services provided by financial advisers or planners, many such services may well incorporate a range of the varying levels of advice. Given that, careful consideration will be necessary by advisers and planners to determine whether their particular services are, or are not, subject to the exclusion for "advising" on the activities specified in section 3(1)(a) to (k).

Even if an activity is not "advising", it does not mean that it will automatically be a financial service or a supply of services exempt from GST. The requirement that the activity be itself a financial service or the arranging of a financial service, or "reasonably incidental and necessary" to a supply of an associated financial service (discussed below) must still be met.

As stated earlier in this statement, the supply of services that are "reasonably incidental and necessary" to the supply of any financial service and supplied by the same supplier, are also exempt supplies under section 14(a).

The Act does not define the term "reasonably incidental and necessary" and there are no cases on the meaning of this particular phrase. Therefore, it is necessary to consider the ordinary usage of the component parts of this phrase. Most of the cases are fact-specific in their interpretations and indicate what is necessary or incidental is largely a question to be decided on the particular facts of each case. The following summarises those interpretations.

A number of cases have suggested that incidental means ancillary or consequential. From these cases, the word "incidental" suggests that the services must be something that is usually or naturally associated with or arising out of the services. It must be a consequence of other financial services or provided in conjunction with the financial services in section 3(1). Something is not incidental if it is merely desirable or profitable.

The case law is fact specific on this point and it is the actual context in which the term "necessary" appears that indicates in broad terms the degree of essentiality that the term "necessary" is designed to effect.

The Act imports the element of reasonableness by the inclusion of the word "reasonably" in the phrase "reasonably incidental and necessary" itself. The Act also anticipates that the activity being performed by the supplier will not be a financial service. However, the main or essential activity that is to be undertaken is the provision of a financial service. Thus on the basis of the context that "necessary" arises in section 14(a), it can be concluded that the term "necessary" is in reference to non-financial services that are required or needed for the provision of a financial service stipulated in section 3(1). The term "necessary" in this context is not limited to those activities that are absolutely essential to the provision of a financial service.

In summary, the elements needed for a service to be "reasonably incidental and necessary" to the provision of a financial service, are:

Based on the above, the additional service must be an integral part of the financial service. In other words, there is a close linkage to the financial service or the arrangement of that financial service (section 3(1)(l)). In combination, the words "reasonably incidental and necessary" require that to fall within the scope of this phrase, the service must be provided in conjunction with a financial service and this ancillary service must be essential or produced from the surrounding circumstances or highly expedient to the provision of the financial service.

Before discussing how the above legislative principles relating to the GST treatment of financial services apply, it is necessary to determine how global fees are to be apportioned.

Where a global or combined fee is charged for several supplies of services, some of which are exempt supplies and some of which are standard-rated services, section 10(18) requires an apportionment of the fee between the taxable and exempt supplies: CIR v Smiths City Group Limited (1992) 14 NZTC 9,140. Under section 10(18), if a taxable supply is not the only supply to which a consideration relates, the supply shall be deemed to be for such part of the consideration as is properly attributable to it.

This interpretation statement has categorised the component parts of financial planning fees based on the process of obtaining an initial financial plan, subsequent monitoring of the plan, and any following adjustments or alterations to that plan. It is considered that if fees are charged by financial advisers on the basis of the description of these categories, then determining what amount is subject to GST will be on a more objective basis than the previous public ruling. In the event that a financial planner charges a global fee (e.g. performance fees) for some or all of the services provided, an apportionment of that global fee, based on the categories discussed in this statement, will be required. The amount allocated to each category will be a question of fact in each case.

As noted earlier, the label given to such a supply is not necessarily determinative of the nature of the supply. It is a question of fact what services are provided for the fee, and it is the actual services provided that will determine the GST treatment.

Having discussed the legislative principles relating to the GST treatment of financial services generally, those principles will now be applied in relation to the seven separate financial planning fees categories.

These fees relate to services provided by the adviser from the initial interview stage up to the finalisation of the portfolio plan for the investor. Events leading up to this point may include the preparation of a draft plan, subsequent discussions with the investor, and adjustments to the draft until it is acceptable to the investor.

Initial planning services do not come within any of paragraphs (a) to (ka) of the definition of "financial services" in section 3(1) and in particular paragraphs (a), (c), (d) or (ka), which are the only ones in this group relevant to this statement. The only possibility is paragraph (l).

In relation to paragraph (l), it is unlikely that initial planning services in this category would fall within the narrow interpretation of "arranging" as set out earlier in this statement. In many cases where an investor seeks initial planning services, it is not until the adviser completes the portfolio plan and it is approved and adopted by the investor that a final decision to invest is likely to be made. Activities undertaken before a decision to invest or a positive intention of entering into the transaction would appear too far removed and the provision of the financial service is too uncertain (not that it is essential for actual provision of a financial service to be the outcome).

Initial planning services in the circumstances outlined would not be an arranging service that is tainted by the character of any other financial service the advisers may provide, as it is not closely connected to nor has the purpose of organising the provision of that financial service. To that extent, therefore, such initial planning activities would not come within the initial section 3(1)(l) requirement that they involve "agreeing to do or arranging" any of the paragraph (a) to (ka) activities. If that happens such activities have failed the first test, and the fact that they may also be excluded from being financial services by virtue of the subsequent "advising" criterion in paragraph (l) is of little relevance.

Situations may exist where planning services meet the first requirement of agreeing to do or arranging. However, even if meeting the "arranging" requirement in paragraph (l), initial planning services will fall squarely within the ordinary meaning of "advising" and thus the general exclusion for advising activities in paragraph (l). In this connection, the preparation of the portfolio plan will certainly involve to a significant degree the provision of advice and suggestions or recommendations by the adviser.

Initial planning services provided by advisers are not reasonably incidental and necessary to any supply of financial services on the basis outlined earlier in this statement. Services that are reasonably incidental and necessary to the supply of any financial service (i.e. a supply coming within section 3(1)(a) to (l)) are also exempt supplies under section 14(a). As outlined in the next section, where an adviser arranges implementation of an investment plan, once adopted by the investor those implementation services are generally financial services.

However, the initial planning services are not an additional subordinate service arising out of, or provided in conjunction with and ancillary to, any implementation of that advice (i.e. a supply of financial services). The existence of the initial planning services is not dependent on the supply of those implementation services. Initial planning services are therefore not reasonably incidental and necessary to the supply by the adviser of any financial services.

Initial planning services’ fees are subject to GST. They do not constitute financial services under any of paragraphs (a) to (ka) of section 3(1), nor do these activities as undertaken by advisers generally constitute the "agreeing to do or arranging" of any of the paragraph (a) to (ka) activities in terms of paragraph (l). The initial planning services do involve advisers in advising the investor on an investment programme, and therefore come within the specific exclusion from the definition of a financial service in section 3(1)(l).

This category relates to all fees for services associated with implementing the initial investment plan devised in the preceding section. They will include any one-off, up-front fees paid to or made in respect of services or charges to advisers, administrators, executors, fund managers, etc., to purchase or acquire the investments. The fees include payments to custodians on implementation of the plan or charges by fund managers for entry into the investments.

These services are provided in relation to the placement of investments. The role played by the adviser in relation to the services may vary. In some cases the adviser may directly undertake the purchase or acquisition of investments whether they be debt securities, equity securities, or participatory securities. However, usually the adviser will engage another organisation (e.g. a broker) to implement the investment plan on the adviser’s instructions and place investments on behalf of the investor. This other organisation is often referred to as the "custodian".

As previously noted, the use of one or more intermediaries does not prevent the services provided by them from being financial services in terms of section 3(1)(l).

To the extent that the adviser may directly undertake the purchase or acquisition of investments in the form of a debt security, equity security or participatory security, those implementation services constitute financial services in terms of section 3(1)(c), (d), and/or possibly paragraph (l). As such they are, therefore, exempt supplies. The activity of transferring ownership of such securities is itself a financial service under paragraphs (c) or (d).

On the other hand, the implementation of the investor’s investment plan by the adviser (by him/herself) undertaking or organising the placement of the investments constitutes the arranging of those transfer of ownership activities in terms of paragraph (l). Such undertaking or organising the placement of investments comes within the meaning of "arranging" as outlined earlier in this statement.

In situations where a custodian implements the plan and acquires the particular investments on the instruction of the financial adviser, the fees charged by the adviser to the investor are also for an exempt supply of arranging financial services in terms of section 3(1)(l). The arranging service is tainted by the financial service’s character, as it is closely connected to and has the purpose of organising the provision of that financial service or causing it to occur.

If the adviser uses a custodian to place investments and passes on any of the custodian’s charges for this service to the investor as a disbursement, no GST consequences will arise for the adviser if the adviser is acting as the investor’s agent. However, the adviser must account for GST output tax on payments made in the capacity of principal and on-charged to the investor.

Section 60(2) deems a taxable supply of goods and services made to an agent on behalf of a principal to be a supply made to the principal. Under this section, a supply of services that the adviser receives as agent for a client investor is deemed to be supplied to the investor client, not to the adviser. If the adviser pays for the supply and the client investor reimburses the adviser for that payment, the reimbursement is not consideration for a supply of services by the adviser. The adviser does not have to account for GST output or input tax on the supply.

The discussion on the GST consequences of disbursements was outlined in the item Disbursements by professional firms on behalf of clients - GST on page 5 of Tax Information Bulletin Vol 6, No 1 (July 1994).

Implementation services will be financial services under section 3(1)(c), (d), and/or (l), and as such they are exempt supplies under section 14(a).

These fees are generally described by advisers as "annual on-going" fees. They are charged by the adviser in respect of services provided in, and to cover costs of, maintaining records of the investor’s transactions with the adviser. They are also in respect of services and charges relating to the handling of cash for the investor, such as the withdrawal and deposit in the investor’s account with an administrator, bank charges, and other administration fees. Any fees or commissions charged by the adviser for collecting income from the investments and arranging these to be paid to or credited to the investor’s account with the adviser or to the investor’s bank account are also included.

The different activities or services described as falling within the administration fees category are addressed individually.

Fees or commissions charged by the adviser for collecting income from the investments and arranging these to be paid to or credited to the investor’s account with the adviser or to the investor’s bank account, may generally be accepted as falling within the wording of section 3(1)(ka). That is, "the payment or collection of any amount of interest, principal, dividend, or other amount". This is on the basis that the amounts concerned relate to investments in a debt security, equity security, participatory security, credit contract, contract of life insurance, superannuation scheme, or futures contract.

Alternatively, if part of the activities performed by the adviser in collecting investment income and arranging payment or crediting to the investor’s account (as described in this fees category) do not fall entirely within section 3(1)(ka), then they usually constitute financial services within paragraph (l). That is, the activities would fall within "arranging" one of the activities specified in the earlier paragraphs of section 3(1). This is on the basis that the particular service involved actively carrying out a service prior to the actual payment of an amount in respect of the investment. There is a direct nexus between the adviser doing this and the actual payment of an amount in respect of the investments, which is a financial service within paragraph (ka) of section 3(1).

If a person other than the adviser (e.g. custodian or investment administrator) performs the income collection and distribution activities under consideration in this part of the statement, those activities would generally be financial services in terms of either section 3(1)(ka) and/or (l).

Services and charges relating to the handling of cash for the investor, such as the withdrawal and deposit in the investor’s account with an administrator, bank charges, etc., are also considered initially under section 3(1)(ka) and/or (l). This is on the basis that the "investor’s cash" referred to relates to money either arising from investment income, investment sales or withdrawals, or provided by the investor to make initial or new investments. Furthermore, the same person or organisation undertakes both the cash handling services and the associated income collection and distribution services or investment placement services (or the arranging of such services), whether it is the adviser or administrator, etc.

Subject to the money concerned relating to investments of the type specified in paragraph (ka), the activities referred to can be considered to come within the wording in the paragraph:

… payment or collection of any amount of interest, principal, dividend, or other amount whatever in respect of …

To the extent that it could be argued that part of the cash handling activities referred to may not directly involve "payment or collection of … or other amount whatever", it is considered they could come within section 3(1)(l) as being involved with the arranging of such activities. A direct nexus exists between the adviser or administrator doing this and the actual payment of an amount in respect of the investments. On the other hand, it could be argued that the cash handling activities are not always a precursor to the payment or collection of the investor’s interest, principal, dividend or other amount or "cause that collection or payment to occur" and are therefore not "arranging".

However, even if the cash handling activities referred to do not constitute arranging, they would still qualify as an exempt supply under section 14(a). That is on the grounds that they are "reasonably incidental and necessary" to the Income collection and distribution services element of the administration fees already stated to be a financial service.

Without the cash handling services and investor accounts, the adviser or administrator would be unable to undertake the financial service of collecting and processing distributions for investors; those distributions being placed in each investor’s "cash holding account". Maintaining such investors’ accounts is essential to the adviser or administrator being able to supply the service of income collection and distribution for investors. Consequently, cash handling activities are regarded as being reasonably incidental and necessary to the Income collection and distribution services element of the administration services that are a financial service supplied by the same person.

On that basis, to the extent there is doubt as to these services qualifying as financial services under section 3(1)(ka) and/or (l), they would still qualify as an exempt supply in terms of section 14(a). That is, they are reasonably incidental and necessary to the Income collection and distribution services element of the administration fees already stated to be a financial service.

To the extent that these activities relate to records of cash transactions between the adviser and investor, the reasoning and conclusions outlined in the previous section will apply equally here. This is on the basis that both the records maintenance activity and the associated income collection and distribution services and/or investment placement services (or the arranging of such activities), to which the cash transactions relate, are undertaken by the same person, whether it is adviser or administrator, etc. Where this occurs, this part of the administration fee activities will constitute an exempt supply. That will be either by virtue of being a financial service under section 3(1)(ka) and/or (l) or a supply of a service that under section 14(a) is reasonably incidental and necessary to those other supplies making up the administration fee services as described (which in themselves are financial supplies supplied by the same person).

The position may be somewhat different where the maintaining of transaction records’ activity referred to is undertaken by someone other than the person maintaining and operating the investor’s investment cash account (or carrying out income collection and distribution or investment placement services). In that situation, the maintaining of transaction records could not be a supply of services that are reasonably incidental and necessary to another supply of services that are financial services as required by section 14(a).

If the transaction records relate to the placing of investments and/or implementation of an investment plan (the undertaking or arranging of which it is considered is a financial service under section 3(1)(c), (d) and/or (l)), then (subject to the above comments) the keeping of such records is reasonably incidental and necessary to those other services. The keeping of such records would be essential as opposed to merely being a desirable adjunct to such activities.

Earlier in this statement, it was concluded that the context in which the word "advising" is used in the phrase "advising thereon" in section 3(1)(l) indicates the more limited of two possible meanings. That is, the exclusion for advising thereon requires more than mere notification of or the dissemination of information regarding the financial service activities in section 3(1)(a) to (k). Rather it excludes activities involving a degree of interpretation of information, counsel or opinion relating to those activities.

Based on the description of monitoring services outlined, such services will not usually be subject to the "advising thereon" exclusion from financial services within the terms of section 3(1)(l). However, as indicated earlier, some information and reporting services provided by financial advisers or planners may well incorporate levels of advice that fall inside the meaning attributed to the exclusion for advising on the activities specified in section 3(1)(a) to (k). Careful consideration will, therefore, be necessary to determine whether particular services are, or are not, subject to the exclusion.

As discussed, even if an activity is not "advising" it does not mean that it will automatically be a supply of services that is exempt from GST. The requirement that the activity itself be a financial service or the arranging of a financial service, or reasonably incidental and necessary to a supply of an associated financial service still has to be met.

Based on the earlier criteria in this statement for satisfying the "agreeing to do, or arranging" requirements in section 3(1)(l), the monitoring services do not meet those tests. Neither are monitoring services reasonably incidental and necessary to another supply of services which is itself a financial service.

On this basis, monitoring fees will be regarded as not constituting a financial service in terms of section 3(1) or an exempt supply in terms of section 14(a).

This category includes fees relating to services involving subsequent evaluations of the portfolio’s performance, where the investor generally seeks confirmation that an already established portfolio is matching the goals set by either the investor or at the initial planning stage. This is a more detailed examination of performance of the portfolio than simply monitoring performance and reporting to the client. It may or may not result in a recommendation from the adviser to make changes to investments within the portfolio to maintain the aims established in the initial planning stage.

Evaluation fees arise where the investor already has an existing portfolio and seeks advice to make changes to the income producing structure but not to the aims or goals of that structure.

The services covered by these fees can be compared with and are similar in nature to some of those provided under the Initial planning fee category discussed earlier, in particular the provision of advice relating to future investment options and preparation of an investment plan. As such the GST treatment of evaluation fees is reasonably clear and is in line with that applying to Initial planning fee services.

To the extent that these evaluation fee services involve agreeing to do, or arranging any of the activities specified in section 3(1)(a) to (ka), the services fall squarely within the "advising" exclusion in section 3(1)(l). Evaluation fees are therefore subject to GST.

The category includes fees relating to services involving a re-planning of a portfolio sometimes arising from Evaluation fees services due to changes to the investor’s objectives. This could be a minor change or a complete restructuring of investments and a change in investment strategy. Re-planning fees do not necessarily refer to advice supplied by the same adviser. The fees could be for advice by an adviser to a new client who had previously managed his or her own portfolio or had previously engaged a different adviser. The category could include any other fees as described in Initial planning fees above, when a complete restructuring of investments has occurred.

As the name suggests, a re-planning could involve the restructuring of the current portfolio to meet the investor’s existing or changed investment goals and usually includes recommendations or suggestions for future investment.

The services covered by these fees are very similar to those in the Evaluation fees category above, except that re-planning fees arise when there is a change in the investor’s investment objectives. The GST treatment for services in the re-planning fee category is therefore the same as for Evaluation fees and the analysis is in line with that applying to Initial planning fee services.

Accordingly, to the extent that these services involve agreeing to do, or arranging any of the activities specified in section 3(1)(a) to (ka), the services fall squarely within the "advising" exclusion in section 3(1)(l). Re-planning fees are therefore subject to GST.

These fees relate to the costs involved in selling existing investments and/or purchasing new investments arising from a recommendation by the adviser as a result of services suppled in relation to the two preceding fee categories (Evaluation fees and Re-planning fees). The fees will be charged by the adviser for services provided in changing investments within the portfolio, and will include any fees for services relating to the withdrawal in whole or in part from the then existing portfolio.

The services provided for these fees have close similarities to those in the Implementation fees category, and in fact will include many that are the same. In particular up-front fees paid to or made in respect of services or charges to advisers, administrators, executors, fund managers, etc., to purchase or acquire the new investments will arise in both the implementation fees and switching fees categories. The same can be said for payments to custodians (on implementation of a

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